Like everything in life, even the investment strategy should be tailored to your preferences. There are ways to deliver double-digit growth even when stocks are not central to the strategy. There are many among our long-term clients who do not want the stress of daily volatility, but yet want to see growth in their investment portfolio so that it allows them a fixed income on a monthly or periodic basis. This is especially useful if you have been an active investor for some time and have built a sizeable portfolio and are interested in consolidating the income to ensure a salary-like monthly or quarterly payments. People closer to their retirement, or those venturing into early stages of entrepreneurship, or those looking at taking some time off might be interested in this strategy.
Fixed income strategies are quite simple to build. First thing, we never enter a complex fund or fund-based product to achieve a fixed dividend or coupon or interest. A lot of us invest in bond funds which deliver poor returns due to unnecessary diversification and charges. We strongly recommend concentration and better risk management. Like investing in a performance fee based fixed income product backed by hard collateral (3 to 5 times of the investments). It is important for the product to have a periodic cash flow and show a great track record of 10 years plus in returning funds to the shareholders and investors – It must be a win-win situation for all.
An example is the Real Estate Investment Trust (REIT) which owns large commercial properties such as office buildings, warehouses etc., and delivers 80% of their rental income to the investors as dividend. One can also go for fully-hedged options strategies to earn premiums and achieve 10-15% yearly returns with low risk to the principal amount. Like Warren Buffett once said, ‘Risk comes from not knowing what you are doing’.
A good fixed-income strategy to be a lender to prime real estate developers with a great track record of delivering projects on time and returning money to existing and previous investors. However, the basic challenge for individual investors here lies in not doing their due diligence and investing developers who are great relationship builders, but do not have a track record of completing their projects on time.
The second mistake people make is to not go through the official channel, but to invest in cash, or in unapproved land and projects. Thirdly, they invest their full corpus with one developer and do not hedge their risks through diversification. Fourth, they do not check the regulatory requirements, nor appoint a legal counsellor and investment advisors to check the regulatory environment. Just to give you an example, I will never invest in Africa unless the market is well regulated and transparent. The IREF-IV is a great example to correct the above-mentioned mistakes and make money with lesser and diversified risk.